A niche product to a national
competitor
By: Tom Anderson
Kyle McDaniel
Dan McLindon
Ray Moorman
Jeremy Smiley
Key Question
Can Whole Foods remain competitive in the
face of major changes in the external
environment?
Supporting Questions:
What is the history of Whole Foods?
What is changing in the external environment?
What are the changes in demand?
How is supply changing in the retail food
industry?
How is the competitive landscape changing?
What is Whole Foods Strategy?
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Marketing
Growth
Operational
Supporting Questions:
What internal factors are affecting Whole
Foods?
What are the strengths, weaknesses,
opportunities, and threats for Whole Foods?
What are the future challenges of Whole Foods?
How should Whole Foods proceed?
Overview of Whole Foods
Founded
1980
Vision
Create an international brand , create a
more healthy diet for consumers , pace
setter in the industry, be the best in food
retail
Brand Values
Natural & Organic Foods
Competitive Position
Premium Products at a Premium
Price
Source of Differentiation
Best Quality, least processed,
most flavorful, naturally preserved,
zero hormones and pesticides
Status in 2008
275 stores, 3 countries, $6.6bn in
revenue
Corporate Objective
400 stores, $12bn in revenue
What is changing in the external
environment?
PEST Analysis for Whole Foods
Category
Issue
Threats/Opport
unities
Ranking (1-5)
Political
4 tier class
system i.e.
Organic
Definitions
Opportunity
1 or 2
Economic
2008 Economy
Sours
Threat
5
Social
More health &
Opportunity
environmentally
conscious
population.
Technological
4 or 5
What are the changes in demand?
Overview of the Demand
Total Food Retail
$850bn
Natural & Organic Retail
$62bn (7.3%) – niche market
Growth Rate
Growth slowed since 2000 (7-9%)
Organic $17bn (1/3 of natural foods)
Key Items Purchased
Fresh fruit &vegetables – 73%
(largest category)
Big growth is processed items
3 Key Barriers for Consumers
Prices of organic foods – likely to
decline as competition/supply
increases
Lack of availability – more supply in
the future
Brand loyalty to natural & organic
foods
How is supply changing in the food
retailing industry?
Porter’s Five Forces
Potential
Entrants
Suppliers
Heating Up
Cool To
Warm
Competitive
Rivalry
Substitutes
Buyers
Porter’s Five Forces – Whole Foods Market
Forces
Description
Conventional
Retailers
Threat of Substitute
Products
Easy switch to the conventional retailers. Specialty
stores built right in to their strategies.
High
Bargaining Power of
Suppliers
Largest food processors acquiring organic food
producers. Only 1% of farmland used for organics.
Medium to High
Bargaining Power of
Buyers
For the most part, conventional retailers determine
what we pay.
Low
Intensity of
Competition
Degree of commitment by the conventional retailers
will determine the intensity.
High
Threat of New
Entrants
Entrants are already there! Their intensity of their
pursuit of the natural/organic market is the question.
Low – Medium
Whole Foods Answer
Forces
Whole Foods Answer to the Competition
The Result
Threat of Substitute
Products
Acquisitions, taking on debt, reducing available
cash. Hoping to get into new markets. Plans for
new stores, varied floor plans
Slowing growth since
2000
Bargaining Power of
Suppliers
Use local suppliers. But only 1% of farmland being
used as organic farms. The big retailers are in a
better position to deal with suppliers.
Struggling to find beef
and chicken
suppliers.
Intensity of
Competition
Growing and marketing organic foods runs 25 to
75% higher than conventional. Conventional
retailers setting the price and gaining market
share.
Spend less (%) than
the competition.
Bargaining Power of
Buyers
For the most part, conventional retailers determine
what we pay.
At will.
Threat of New
Entrants
Entrants are already there! Their intensity of the
pursuit of the natural/organic market is the
question.
Already there.
How is the competitive landscape
changing?
Changes in the Competitive Landscape
Should they really welcome competition?
Local, regional, independent, national, and specialty
stores are all competitors.
CEO say it is a gateway for customers to try
natural/organic foods or opportunity for the
competition?
Take a look at Store Sales Growth
2004
2005
2006
2007
2008
14.9%
12.8%
11.0%
7.1%
???
Sales growth has been cut in half since 2004!
Changes in the Competitive Landscape
We may be seeing a revolution in the food retailing
business.
Supercenters – Marketplaces – Wholesale Clubs
2006
US Grocery Sales
# of Stores
Revenue in
Billions $
Conventional
Retailers
25%
5812
$377
Whole Foods
0.7%
188
$5.6
Will the competition force Whole Foods to rethink
their strategy?
What is Whole Foods Strategy?
Marketing
Growth
Operational
Marketing Strategy
Product
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High Quality Natural and Organic Food and
nonfood items
Offerings vary based on store size and tastes of
local clientele
Exotic offerings and product variety
Ex) Japanese eggplant, 40 cheeses, 20 coffees
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Private label products
Emphasis on perishables (fruits/veg., bakery
goods, meat, seafood) – 67 % of sales
Marketing Strategy
Price

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Goal is competitive price at highest quality
Organic foods are 25 – 75% more costly to
grow and market
Price and Quality are competing forces
Whole Foods chooses to focus on Quality,
therefore prices are higher than conventional
grocers
Marketing Strategy
Place

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No standard store design. Layout
customized for site and product mix.
Colorful, inviting, fun
Gathering place to learn, interact, eat, and
grocery shop

Presentation
Highly regarded food displays, cleanliness,
wide aisles
Marketing Strategy
Promotion

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Primarily rely on word-of-mouth
recommendations
0.5% of revenue spent on advertising
Most marketing spend is for in-store
signage and events
Store personnel is knowledgeable and
personable
Growth Strategy
New stores and acquisitions of small
owner-managed chains in desirable
markets
Ideal store size is 45,000 – 60,000 sq.
ft.
Operational Strategy
Team-based management of store
operations

Many personnel, merchandising, and operating
decisions made at store level
Buying responsibility at the national and
regional levels for volume discounts
Own and operate many distribution centers:
2 for produce, 9 bake houses, 5 commissary
kitchens for prepared food, and a central
coffee roaster
What internal factors are affecting
Whole Foods?
Internal Analysis
Affordability is a key Weakness – WF must
build value with every customer interaction.

Email recipes, establish newsletter, personalized
services once customer is in the store, free
organic cooking classes, partner with local
farmers in advertising
Internal Analysis
Value Chain Analysis
 Logistics seem to be streamlined
 Operations – opportunity to be more efficient, appeal to
more customers/increase average spending
Focus more on perishables (fruit and vegetables) –
reduce waste and spoilage in biggest section of the
store
Eliminate non-essential services – valet parking,
massages
Develop budget that allows chefs to teach organic
cooking classes to customers at no cost.
Continue to invest in customer service associates.
Their interactions can help build brand loyalty.
Internal Analysis
Value Chain Analysis (continued)
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Marketing – severely under-funded, develop new
marketing campaign in current markets to reach more
middle/upper income families. Focus on
pesticide/hormone free and benefits to the earth –
capitalize on green/healthy trends.
Management/Administration – board should remove
John Mackey and replace him with a leader with
experience in grocery or organics. Proven inability to
lead at this level. Doesn’t have the vision to make the
changes necessary right now.
What are the strengths,
weaknesses, opportunities, and
threats for Whole Foods?
SWOT Analysis
STRENGTHS
Experience in the Industry
Large, customized stores
Huge selection/variety – over 30,000
items
Nationally Known Organic/Natural Foods
Seller
OPPORTUNITIES
Expand private label selection – lower price for
customers
Advertise more, create coupons and promotions
to get people in the store
Hype right now is to eat healthier and protect
the environment
Rewards program – frequent buyer cards (like
Kroger cards)
Back to Basics – buy more local products that
people will pay more for
WEAKNESSES
Price – up to 75% higher
Locations – only in affluent areas
Advertising Budget very low (WOM
approach)
Promotional Offers – no coupons
THREATS
Conventional Supermarkets
Bad Economy
Local Farmers’ Markets/Independent
Retail Chains
What are the future challenges for
Whole Foods?
Future Challenges
Conventional Grocery Stores over saturate
Market & offer Organic & Natural Foods

Convince new customers to shop at WF
rather than more convenient stores
Pricing – being able to compete against
the conventional grocery chains
Getting more people in the store
Recommendations for
Whole Foods Market
Recommendations
Lower Price to Compete with Grocery
Stores
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Add a customer rewards program for frequent
buyers
Mail coupons to customers in a targeted
marketing effort
Expand Private Label Selection
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Lowers mfg costs, could offer discounts to
customer for using WF brand products
Recommendations
Expand Private Label Selection

Lowers manufacturing costs, offer discounts
to customer for using WF brand products
Recommendations
Personalize Service at WF
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3 days after purchase, email Thank You cards to
customers after purchases
7 days after purchase, email 10% coupon to use on
next purchase
Email recipes
Advertise, Advertise, Advertise

Mail fliers to local zip codes – show locally grown
foods, classes offered, items on sale, coupons
Recommendations
Catering

Offer catering to local businesses & events
Stop re-branding Wild Oats stores
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Halt expansion until WF builds up more cash
Focus on profitable stores and use that
philosophy to improve unprofitable stores
Look at option of selling some
underperforming Wild Oats stores
Questions?